Mallinckrodt to spin off generics business, but to keep options open

(Reuters) - Mallinckrodt Plc (MNK.N) plans to spin off its specialty generics business to shareholders by the second half of 2019, but said it was still open to a sale of the unit.

The company has been looking to sell the division since 2016 and talks held this year with at least two potential buyers fell through, according to media reports.

Mallinckrodt’s shares fell 7.5 percent to $21.41 on Thursday morning.

The generics business, which generated revenue of $839.5 million in fiscal 2017, largely makes opioid drugs and has come under pressure as more doctors in the United States shy away from prescribing the addictive medicines that had claimed nearly 50,000 lives last year.

Mallinckrodt is facing several lawsuits that have alleged that the company contributed to the opioid addiction epidemic through its marketing and promotion practices.

Like other generics makers, the company is also struggling with falling prices for such drugs.

In a bid to cushion the impact, the new generics company will include constipation drug Amitiza, which was added through the firm’s purchase of Sucampo Pharmaceuticals last year.

“The lion’s share of the revenue stream that we see coming out of our pipeline is 4-5 years out ... Amitiza will help us as we transition to the portfolio,” Chief Financial Officer Matthew Harbaugh, who will head the generics spinoff, said on a conference call.

Executives also said on the call that the cash impact from any sort of opioid settlement was “probably a number of years away”.

The generics business is expected to launch as many as five new products in 2019 and will be headquartered in St. Louis, Missouri. It will take Mallinckrodt’s name.

The remaining business of specialty branded products will be renamed later and headed by Chief Executive Officer Mark Trudeau.

The business is expected to benefit from being able to deploy capital more freely and focus on its pipeline, even as it relies on Mallinckrodt’s biggest drug Acthar - whose sales have been declining - for nearly half of its revenue.

The company will also be “less encumbered by opioid liability”, according to Mizuho Securities analyst Irina Koffler.

The planned separation is expected through a pro-rata distribution of common stock to shareholders and will be tax-free, Mallinckrodt said.